Risk Preferences Research Articles

Foraging in a non-foraging task: Fitness maximization explains human risk preference dynamics under changing environment.

Changes in risk preference have been reported when making a series of independent risky choices or non-foraging economic decisions. Behavioral economics has put forward various explanations for specific effects on risk preference in non-foraging tasks, but a consensus regarding the general principle underlying these effects has not been reached. In contrast, recent studies have investigated human economic risky choices using tasks adapted from foraging theory, which require consideration of past choices and future opportunities to make optimal decisions. In these foraging tasks, human economic risky choices are explained by the ethological principle of fitness maximization, which naturally leads to dynamic risk preference. Here, we conducted two online experiments to investigate whether the principle of fitness maximization can explain risk preference dynamics in a non-foraging task. Participants were asked to make a series of independent risky economic decisions while the environmental richness changed. We found that participants' risk preferences were influenced by the current and past environments, making them more risk-averse during and after the rich environment compared to the poor environment. These changes in risk preference align with fitness maximization. Our findings suggest that the ethological principle of fitness maximization might serve as a generalizable principle for explaining dynamic preferences, including risk preference, in human economic decision-making.

Time‐varying risk preference and equity risk premium forecasting: The role of the disposition effect

AbstractThis study examines whether the disposition effect can explain time‐varying risk preference and predict the equity risk premium. To do so, we propose an augmented general autoregressive conditional heteroskedasticity (GARCH)‐in‐Mean model unraveling the complex relationship between unrealized gains/losses, realized returns, and the equity risk premium. In our model, the risk aversion coefficient varies with the market state of unrealized gains/losses. Using data from the US stock markets, we show strong evidence that the disposition effect drives time‐varying risk preference: The risk aversion coefficient is significantly positive during periods of unrealized gains, but insignificant during periods of unrealized losses. These findings reconcile the conflicting results of the risk‐return trade‐off in existing literature. Moreover, our model shows significant predictability of the equity risk premium, both in‐sample and out‐of‐sample. Incorporating our model's predictions can yield substantial utility gains for a mean‐variance investor. Our results indicate that the disposition effect leads to time‐varying risk preference and thus induces equity risk premium predictability.

Eliciting risk preferences in an artefactual field experiment via replication and an alternative approach

AbstractThis paper investigates risk preferences using an artefactual field experiment conducted with a non-standard subject pool of farmers in Ghana. I introduce an alternative methodology for studying preferences following replication of a seminal risk elicitation procedure by Binswanger (Am J Agric Econ 62(3):395407, 1980). An important feature of both approaches is that they are easy to understand and, hence, are particularly suitable for eliciting preferences among subjects with low levels of formal education. I successfully replicate Binswanger’s study, documenting how his original result of the moderate level of risk aversion for an average farmer can be generalized to a different country. However, using my alternative approach, whereby lotteries are presented in the loss domain, I find that half of my experimental subjects violated expected utility theory. This approach is of relevance to the current literature on studying risk preferences among subjects with poor literacy skills.

The impact of information presentation on self-other risk decision-making

To explore the impact of social distance and information presentation types on self-other risk preferences in monetary tasks. Risk preferences were examined in decision-making tasks and experiential information tasks within different frameworks when participants made decisions for themselves and others. Experiment 1 employed experiential decision tasks and revealed individual differences in decision-making for oneself and others. In gain situations, participants exhibited more risk aversion when deciding for others compared to themselves. Experiment 2 presented both types of information simultaneously to investigate whether risk decisions for oneself and others are influenced by information types. Results indicated that experiential information led participants to make more conservative choices for others, while descriptive information eliminated this effect. This study discovered the influence of social distance on self-other risk decisions and the role of information presentation types in self and other risk decision-making. Future research could further explore self-other decision-making from the perspectives of decision-makers’ traits and culture.

The impact of stress on the risk decision-making process.

The effect of stress on risk-taking or risk-averse behavior in decision-making has been inconclusive in previous research, with few studies revealing the underlying neural mechanisms. This study employed event-related potentials technique and combined a social cold pressor assessment test with a mental arithmetic task to induce stress responses, aiming to investigate the influence of exogenous stress on the risk decision-making process. Stress induction results indicated that, in addition to raising heart rate and blood pressure, stress responses were accompanied by enhanced negative emotions, diminished positive emotions, and alterations in neural activity. The outcomes of risk decision-making showed that stress did not significantly affect risk preference or time of choice but did reduce the feedback-related negativity/reward positivity, with a particularly significant effect observed for large outcomes. Stress also altered the amplitude of the P3 component, with stress decreasing the P3 value for winning outcomes relative to losing outcomes. The study suggests that understanding how stress affects risk preference should consider the emotional valence induced by stress. Contrary to the reward sensitivity hypothesis, stress weakened reward sensitivity. Stress led to changes in the allocation of cognitive resources for outcome evaluation: compared to negative outcomes, stress reduced cognitive resources for positive outcomes, which might be related to the enhanced negative emotions induced by stress. The study highlights the importance of focusing on the subjective emotional experience induced by stress in future research on stress and risk decision-making.

Risk and time preferences in individuals with lifestyle-related and non-lifestyle-related cardiovascular diseases: a pilot study

ObjectivesTo (1) pilot a study of behavioural characterisation based on risk and time preferences in clinically well-characterised individuals, (2) assess the distribution of preferences in this population and (3) explore...

Shocks and Stability of Risk and Time Preferences among Poor Rural Households in Ethiopia

Abstract This paper examines the effects of shocks on temporal stability of risk and time preferences of rural households within a developing country context characterized by frequent droughts, chronic food insecurity, and low levels of education. Leveraging a three-wave large and diverse household panel data that elicits preferences every two years for more than 6,500 individuals from over 5,600 sample rural households in Ethiopia, we analyze the effects of droughts (self-reported) and rainfall shortfalls on household risk and time preferences. Our findings show that households become more risk-averse and impatient after experiencing drought and rainfall shocks; the change in risk preferences is more notable among households that experience recurrent droughts and multiple covariate shocks during the same period.

Factors influencing United States cattle producers use of livestock risk protection

AbstractUnited States cattle producers have various government‐sponsored programs to protect against weather and disease related risks, but livestock risk protection (LRP) insurance is the only program that protects against price risk. However, adoption of LRP insurance is low even though cattle price declines are the primary cause of economic loss, and LRP premium subsidies have recently been increased. Therefore, the objective of this study is to explore how informational nudges about receiving an indemnity payment, LRP contract characteristics, and individual risk preferences affect the use of LRP. Producer survey results were estimated using a Cragg model to determine the factors affecting producers’ likelihood of purchasing LRP and the number of head they would insure. Producers were more likely to purchase 100% LRP coverage and would also insure more head at 100% coverage when compared to lower coverage levels. We found providing information on the probability of receiving an indemnity did not impact LRP purchasing decisions. However, counter to expectations, producers were more likely to buy LRP when the randomly provided cattle prices in the survey were successively increasing each month, and if participants considered themselves more willing to take risks in their cattle operation. Results provide insights into behavioral factors affecting LRP participation which could help inform future insurance policies.

Earthquake disaster insurance literacy and earthquake insurance purchasing behavior: based on the mediating effect of risk preference

Earthquake disaster insurance literacy and earthquake insurance purchasing behavior: based on the mediating effect of risk preference

Conditions for extrapolating differences in consumption to differences in welfare

AbstractWe characterize conditions under which a better consumption distribution implies higher welfare. Specifically, here “better consumption” means first‐order stochastic dominance, and “higher welfare” means higher expected utility for every subpopulation of individuals with the same utility function. Although this implication seems natural, we first provide a counterexample wherein better consumption risk allocation outweighs lower consumption. We then show that higher expected utility results from higher consumption in different settings, including fixed dependence (fixed copula) between consumption and individual risk preferences, or alternatively using the rank invariance assumption from the treatment effects literature. These are discussed in several real‐world examples.

Interval-valued intuitionistic fuzzy three-way conflict analysis based on cumulative prospect theory

 This paper makes a significant contribution to the field of conflict analysis by introducing a novel Interval-Valued Intuitionistic Fuzzy Three-Way Conflict Analysis (IVIFTWCA) method, which is anchored in cumulative prospect theory. The method’s key innovation lies in its use of interval-valued intuitionistic fuzzy numbers to represent an agent’s stance, addressing the psychological dimensions and risk tendencies of decision-makers that have been largely overlooked in previous studies. The IVIFTWCA method categorizes conflict situations into affirmative, impartial, and adverse coalitions, leveraging the evaluation of the closeness function and predefined thresholds. It incorporates a reference point, value functions and cumulative weight functions to assess risk preferences, leading to the formulation of precise decision rules and thresholds. The method’s efficacy and applicability are demonstrated through detailed examples and comparative analysis, and its exceptional performance is confirmed through a series of experiments, offering a robust framework for real-world decision-making in conflict situations.

Abstract PO2-01-09: Patient preferences for CDK4/6 inhibitor treatments in HR+/HER2− early breast cancer: a discrete choice survey study

Abstract Background: Patients (pts) with stage II/III HR+/HER2− early breast cancer (EBC) are at risk of recurrence that persists over years. The addition of a CDK4/6 inhibitor (CDK4/6i) to adjuvant endocrine therapy (ET) was investigated in monarchE, evaluating abemaciclib (ABE) in lymph node (LN)+ high-risk pts, and NATALEE, using ribociclib (RIB) in stage II/III disease, including pts with N0 disease. ABE was FDA approved in this indication in 2021, while NATALEE recently reported statistically significant iDFS results. Both efficacy and tolerability are relevant for pts treated in a curative setting. This prospective study evaluated the extent pts with EBC value different treatment (tx) attributes and how these may translate into preferences between the two CDK4/6i in the US. Methods: A web-based discrete choice experiment survey was conducted among pts with EBC between Jan and May 2023 before NATALEE results were available. Eligible pts were adult women in a US clinical practice setting with self-reported stage II/III HR+/HER2− EBC +/- prior chemotherapy receiving only adjuvant ET at the time of survey, who completed curative surgery 1-3 years ago. Pts selected the scenario that best reflected their preferences from a series of choice cards, each displaying a pair of hypothetical tx profiles. A total of 8 attributes related to efficacy (5-year iDFS), adverse events (AEs), monitoring requirements, tx duration, and schedule were included (Table 1). Attributes were included based on an initial pilot qualitative assessment that selected efficacy and safety attributes most relevant to pts, clinical input, and differentiating features between CDK4/6i. A conditional logit regression model was used to estimate preference weights and relative importance (RI) of each attribute. Utility scores, summarizing overall preference for CDK4/6i tx profiles, were estimated from the model, and various scenarios were tested. Subgroup analyses by menopausal status and BC stage will be presented. Results: 409 pts participated in the survey (median age, 53 years; White/Black/other race, 59%/23%/18%; BC stage II/III, 48%/52%; employed, 38%). Pt preferences for attributes that significantly impacted tx decision, in order of high to low RI, were higher efficacy (iDFS), lower risk of diarrhea, lower risk of fatigue, shorter tx duration, and lower risk of venous thromboembolic events. Attributes based on monitoring or schedule, including number of blood tests, number of EKGs, and tx schedule, did not affect tx choice (Table 2). Overall utility scores were consistently higher for reconstructed tx profiles that resembled RIB features, including under conservative scenarios where efficacy of RIB was assumed to be equivalent or lower than that of ABE. Conclusions: This study showed that, driven by strong preference for lower risk of AEs, pts with HR+/HER2− EBC prefer tx profiles that more closely resemble the clinical experience of receiving RIB. These pt preferences are important for shared decision making when discussing the addition of a CDK4/6i to adjuvant tx for eligible pts with HR+/HER2− EBC. Discrete Choice Experiment Attributes and Levels Estimated Preference Weight and Relative Importance Citation Format: Erica Mayer, Mary Lou Smith, Annie Guerin, Dominick Latremouille-Viau, Nisha C. Hazra, Yan Meng, Wendi Qu, Remi Bellefleur, Vaidyanathan Ganapathy, Liz Santarsiero, Robert Morlock, Maryam Lustberg. Patient preferences for CDK4/6 inhibitor treatments in HR+/HER2− early breast cancer: a discrete choice survey study [abstract]. In: Proceedings of the 2023 San Antonio Breast Cancer Symposium; 2023 Dec 5-9; San Antonio, TX. Philadelphia (PA): AACR; Cancer Res 2024;84(9 Suppl):Abstract nr PO2-01-09.

Medical Therapy for Peripheral Artery Disease.

Patients with lower extremity peripheral artery disease (PAD) are at high risk for major adverse cardiovascular events (MACE) and major adverse limb events (MALE). This manuscript will review the current evidence for medical therapy in patients with PAD according to different clinical features and the overall cardiovascular (CV) risk. The management of PAD encompasses non-pharmacologic strategies, including lifestyle modification such as smoking cessation, supervised exercise, Mediterranean diet and weight loss as well as pharmacologic interventions, particularly for high risk patients. Benefits for reduction of CV and limb outcomes have been demonstrated for new therapies, including antithrombotic therapy (i.e., low-dose rivaroxaban plus aspirin), lipid lowering therapy (i.e., proprotein convertase subtilisin/kexin type 9inhibitors), and glucose lowering therapy (i.e., sodium-glucose cotransporter-2inhibitors and glucagon-like peptide-1receptor agonists). However, the adoption of these therapies in PAD remains suboptimal in practice. Implementation science studies have recently shown promising results in PAD patients. Comprehensive medical and non-medical management of PAD patients is crucial to improving patient outcomes, mitigating symptoms, and reducing the risk of MACE and MALE. A personalized approach, considering the patient's overall risk profile and preference, is essential for optimizing medical management of PAD.

The relationship between public risk preference and the underuse or overuse of preventive health services in the information age

The underuse or overuse of preventive health services by individuals is an outward behavioural reflection of their attitude towards disease risk, and they are strongly influenced by their information-acquisition ability. Therefore, we try to explore the relationship among the public risk preference, information-acquisition ability and underuse or overuse of preventive health services, in order to provide decision-making basis in the Information Age. The survey surveyed 2,211 respondents aged ≥ 18 in China from September to December 2019. Taking cancer screening as an example, the multiple price list (MPL) test and item response theory (IRT) model were used to measure individual risk preference and information-acquisition ability. The Logit model and Tobit model were used to estimate the relationship between risk preference, information-acquisition ability and underuse or overuse of preventive health services. Risk-seeking individuals were more likely to underuse preventive health services, while risk-averse individuals were more likely to overuse such services. Information-acquisition ability may improve the underuse of preventive health services in risk-seeking individuals but exacerbate the overuse of preventive health services in risk-averse individuals. Among the investigated information channels, the Internet is the most effective way for the public to obtain information. It is necessary to change the public’s incorrect perception of disease risks and risks associated with preventive health services. In the rapid development of the Information Age, improving public information-acquisition ability is a practicable way to correct the negative relationship between risk preference and individuals’ underuse or overuse of preventive health services

A STUDY ON SAVINGS AND INVESTMENT: RISK AND OPPORTUNITIES

This study investigates the intricate relationship between savings, investment, risk, and opportunities in contemporary financial landscapes. With financial markets becoming increasingly complex and interconnected, understanding the dynamics of savings and investment has become paramount for individuals, businesses, and policymakers alike. The first part of the study delves into the concept of savings, examining the various motivations behind saving behavior and the factors influencing individuals' decisions to save. It explores traditional saving instruments such as savings accounts, as well as newer forms such as robo-advisors and digital wallets, highlighting the evolving nature of saving practices in the digital age. Moving on to investment, the study elucidates the diverse array of investment vehicles available to investors, ranging from stocks and bonds to real estate and alternative assets. It analyzes the risk-return tradeoff inherent in different investment options and discusses strategies for constructing well-diversified investment portfolios tailored to investors' risk preferences and financial goals. Finally, the study identifies emerging opportunities in the savings and investment landscape, including technological innovations such as blockchain technology and peer-to- peer lending platforms, which are reshaping traditional financial systems and offering new avenues for wealth accumulation and capital deployment. By synthesizing theoretical insights with empirical evidence, this study provides valuable insights into the complex interplay between savings, investment, risk, and opportunities, offering practical recommendations for individuals

Emerging markets' response to COVID-19: Insights from arbitrages strategies

Global capital markets are sensitive to extreme and physical events. This research explores the influence of COVID-19 on cross-border arbitrage strategies in emerging markets. Specifically, this study develops a novel cross-market pairs trading strategy centered on healthcare stocks, tailored for the unique dynamics of the emerging market environment. The feasibility of cross-border arbitrage strategies in emerging markets is demonstrated by comparing the performance of the strategy before and after the outbreak. Additionally, sensitivity analysis of the risk preference factors before and after the COVID-19 outbreak further supports this argument. These findings offer valuable insights for international investors seeking arbitrage between emerging and other markets and, effectively responding to global shocks.

It takes two to tango: Spousal risk preferences and CEO risk-taking behavior

Using hand-collected data on the cultural origins of S&P 500 CEOs and their spouses, we examine whether differences in risk attitudes within marriages influence corporate risk-taking behavior. We find that CEOs with more risk averse spouses adopt relatively safer corporate policies. The effect is stronger if the CEO comes from a more collectivist culture, has been married more recently, or shares more responsibilities with their spouse. Together, these findings suggest that the cultural composition of CEO household and spousal risk preference affect corporate risk-taking behavior.

The Importance of Risk Preference Parameters in Prospect Theory: Evidence from Mutual Fund Flows

In this paper, we use the well-documented mutual fund flow-performance relationship to infer information about investors’ preferences. We show that applying preference parameter values from experimental settings to market data can significantly understate the role of prospect theory in explaining investor behavior. We find evidence that mutual fund investors exhibit loss aversion and differential attitudes toward risk over losses (risk-seeking) and gains (risk-averse) but no significant probability weighting when evaluating fund performance. Our results apply more strongly to retail funds compared to institutional funds, consistent with the view that prospect theory is more relevant for retail investors. Finally, we show that, for parameter values that best explain fund flows, prospect theory outperforms the global risk aversion framework and widely-used asset pricing models in explaining investors’ responses to fund performance.

Attributes and Impacts of Learning from Prior Lenders in Peer-to-peer Lending

Learning from others is a facet of human nature. In peer-to-peer lending, potential lenders who are interested in the loan, but have not yet funded it, observe and learn from the behavior of prior lenders who have funded the loan. It is unclear, however, whether potential lenders learn from the prior lenders’ attributes other than the observed bidding behavior. Using data from PPDai.com, the study finds that potential lenders consider the prior lender’s risk preference, investment experience, and historical investment performance when making investment decisions. Specifically, potential lenders are more likely to fund loans that have more female or older prior lenders. The potential lenders’ decisions are positively affected by the proportion of prior lenders with long account duration, high investment success ratio, low bad debt ratio, and high money-weighted rate of return.

Does risk preference matter to consumers’ willingness to pay for functional food: Evidence from lab experiments using the eye-tracking technology

With the prominence of nutrition-related health issues worldwide, functional food is supposed to be an efficient way to address this challenge by achieving its nutrition and health benefits. However, whether consumers are willing to pay (WTP) for high-nutritional value foods of this kind and what is the role of consumers’ risk preferences in their WTPs are unclear. This study employs a discrete choice experiment (DCE) to investigate the effect of risk preferences on consumers’ preferences and WTPs for functional food, focusing on four attributes of dairy products: origin, organic label, functionality and price. We also seek to understand the physiological mechanisms underlying this effect by a lab experiment using eye-tracking technology. The results show that consumers have various preferences and WTPs for different attributes of milk, but they are reluctant to pay for functional milk. Compared to consumers with low-risk preferences, consumers with high-risk preferences are more willing to purchase functional milk. The evidence from eye-tracking experiments indicates that visual attention to the attributes considered positively correlates with their consumption preference. Consumers with high-risk preferences tend to pay more attention to the functional attribute and therefore have a higher probability of purchasing functional milk. This study implies that consumers’ risk preferences should be considered when promoting consumers to purchase functional food, as different consumers have significantly distinct preferences.